Tariffs and Landed Cost: Why Your Supplier Price Is No Longer Your Product Cost

Ask most operators what a product costs and you get the supplier price. It is the number in the purchase order, the number in the cost field of the storefront, and the number that gets divided into the retail price when someone asks about margin.

For a long time, that was close enough. Duty rates were stable, freight was predictable, and the difference between supplier price and true cost was small enough to sit in general overhead without anyone noticing.

That is no longer the case. The end of the $800 de minimis exemption in the US, the UK's plan to remove low-value import relief, the EU's move to charge duty on low-value consignments, and duty rates that vary by commodity code and country of origin have made importing both more expensive and less uniform. What a unit costs to land now depends on what it is and where it came from.

The operational problem this creates is not that costs went up. It is that they went up unevenly, and most brands are still measuring margin as an average.

What Landed Cost Actually Includes

Landed cost is the total cost of getting one unit into your warehouse and ready to sell. At minimum, that means:

• The supplier price per unit
• Freight and insurance, apportioned per unit rather than left as a single freight bill
• Customs duty, calculated on the commodity code and country of origin for that specific SKU
• Import VAT where it is not recoverable, and any per-parcel or per-entry charges
• Customs brokerage and entry fees
• Inbound handling, including receiving, quality checks, labelling and put-away
• Currency movement between the date you agreed the price and the date you paid it

Most brands capture the first item accurately, treat the second as a general overhead, and estimate the rest once a year.

Why Two Products in the Same Container Cost Different Amounts

The reason a single average will not work is that each of those cost lines is driven by a different property of the product.

• Duty follows the commodity code. Two items from the same supplier, shipped together, can attract materially different rates depending on how each is classified and where it was made. Classification is a cost input, not an administrative detail.
• Freight follows volume, not value. A bulky, low-priced item absorbs far more freight cost per pound of revenue than a small, expensive one.
• Currency exposure follows the supplier. If you buy in three currencies, one exchange rate assumption is wrong for at least two of them.
• Handling follows complexity. Products needing assembly, relabelling or repacking on arrival carry inbound labour that a boxed item does not.

Put those together, and a catalogue that averages 45% gross margin will contain lines well above that and lines well below it. The average is real, but nothing in the catalogue actually performs at it.

Why Blended Margin Conceals the Problem

This is where the reporting fails rather than the maths.

If margin is reported as a single blended figure, the strong products pay for the weak ones inside the average and the weak ones stay invisible. Most brands notice only when overall margin drifts down a couple of points across two or three quarters, and by then the usual response is to raise prices across the board rather than address the handful of lines responsible.

Worse, the products most likely to be underwater are often the ones with the highest unit volume, because volume is what makes small per-unit cost changes add up.

Getting to Contribution Margin by SKU and Channel

Landed cost tells you what a unit cost to acquire. Contribution margin tells you what is left after the cost of selling and delivering it, which is the number that should decide whether you keep stocking it.

Working from the selling price, subtract:

• Landed cost
• Payment processing, which is usually more than the headline rate
• Marketplace or channel fees, typically 8% to 15% on the major marketplaces
• Pick, pack and packaging
• Outbound carriage, at the rate you actually pay rather than the rate you charge
• A returns provision based on that SKU's own return rate, not the catalogue average

The last one matters more than it looks. A product returned by a third of buyers and a product returned by one in thirty cannot be assessed on the same margin figure, and apparel operators usually know which of their lines are which long before the reporting shows it.

Channel changes the answer again. The same SKU can contribute well on your own site and contribute nothing through a marketplace once referral fees and fulfilment costs apply, and behaves differently again through wholesale, where the price is lower but almost none of the per-order costs apply. There is no single profitability figure for a product, only a figure per product per channel.

Three Things Worth Doing This Quarter

• Assign a commodity code to every SKU and keep it current. Duty cannot be calculated at SKU level until this exists, and everything else depends on it.
• Recalculate landed cost per purchase order rather than annually. Freight rates, duty rates and exchange rates all move. A cost set in January is a guess by September.
• Report contribution margin by SKU and by channel, and read it before the next order goes in. The point of the number is to change what you buy and where you sell it, not to explain the quarter after it has closed.

Where the Systems Usually Fall Down

Most brands can produce these figures. The problem is that it takes someone two days with a spreadsheet, a storefront export, an accounting export, a freight invoice and a customs entry, so it happens once a quarter at best. By the time the analysis is finished, the purchase orders it should have informed have already been placed.

A Retail-First ERP System like Brightpearl by Sage changes the timing rather than the maths. Because inventory, purchasing, order data and accounting sit in one system, landed cost can be captured against the purchase order as costs are incurred and apportioned across the units received, rather than reconstructed afterwards. Built-in Retail Analytics then reports margin at SKU and channel level continuously, so profitability is something you check before committing to a reorder.

Tariffs will keep moving. What you can control is how quickly you see the effect on each product line, and whether you find out in time to reprice, renegotiate, or stop stocking it.

Ready to see what each product is really making you?

Discover how Brightpearl gives you accurate landed cost and SKU-level margin visibility across every channel. Book a demo today.

‍